Grid Tariffs for Peak Demand Reduction: Is there a Price Signal Conflict with Electricity Spot Prices?

TL;DR

This study investigates whether grid tariffs conflict with electricity spot prices in incentivizing peak demand reduction, comparing four tariff designs using real demand data and a demand response model.

Contribution

It introduces a comparative analysis of grid tariff designs and their effectiveness in peak load reduction, considering the influence of spot prices.

Findings

New tariffs reduce peak loads by 1-4%.

Peak load reduction is less effective under spot price exposure.

Different tariff designs have varying impacts on demand response.

Abstract

The electricity grid is expected to require vast investments due to the decarbonization-by-electrification trend, calling for a change in grid tariff design which provides proper incentives for reducing peak loads. However, price signals from grid tariffs could be distorted from electricity spot prices which also represents a significant of the total consumer electricity bill. This paper attempts to identify whether there is a price signal conflict between grid tariffs and spot prices. Four different grid tariff designs are compared, using a generic demand response model as part of a cost-minimizing linear program to simulate the reduction in peak load. The method is applied to metered electricity demand from 3608 consumers in Oslo, Norway. Results show that new grid tariff designs reduce peak loads by 1-4%, and that reduction in peak load is smaller when consumers are subject to electricity spot prices.